DIC Excellence Series May Session - Raising bank finance for Service and IT companies

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This document provides information for IT and service companies on raising bank finance. It discusses how banks perceive SMEs as high risk due to factors like key man risk and poor financial transparency. IT and service companies are seen as higher risk due to low barriers to entry and risks of product obsolescence and commercial disputes. The document offers advice for startups and mature first-time borrowers on preparing financial records, business plans, and identifying strengths to showcase to banks to improve their chances of securing financing. A case study example describes structuring a factoring line using a company's client quality and performance track record to establish a borrowing history.

Education Economy & Finance Business

DIC Excellence Series
Presented by Salvus
Advisors JLT

Raising bank finance for Service and IT
companies

24/05/12 1

How banks perceive ALL SMEs…..

SMEs are perceived as high risk…
High concentration risks

Key man risk

Limited fall-back options

Poor financial management & transparency

Unable to articulate financing needs

Skip risk

24/05/12 2
© Copyright SALVUS. 2011

How are IT and service companies
different?
Hardware (IT) and service companies slightly different…
Both sectors perceived as higher risk.
Low entry barriers
No exclusivity, low USP levels?
High stock obsolescence risk
Service companies : Dealing in intangibles
Higher risk of commercial disputes

24/05/12 3
© Copyright SALVUS. 2011

The Preparation: If you are a Start up

By start up, any firm that is less than 2 years old…
Begin by maintaining clean accounts
Use an outsourced accounting service provider
Ensure you have good (cheap) software
Get your accounts audited by a bank empanelled auditor
Ensure your payment record is good
Open operating accounts with 2 “right” banks
Build good reputations with buyers/suppliers

24/05/12 4
© Copyright SALVUS. 2011

Start-ups, continued…..

Balance sheet lending to start-ups, almost impossible now.
So what are your options?
Expensive parameterized loans

Some structured trade financing MAY be possible

24/05/12 5
© Copyright SALVUS. 2011

Mature, 1st time borrowers

Hard work, even for mature companies, especially service
providers…
Clearly identify financing needs as a bank would
Prepare a brief but comprehensive business plan
Put together a comprehensive information pack
Identify the appropriate bank
Get introduced, if possible

24/05/12 6
© Copyright SALVUS. 2011

Showcase your strengths
Identify your strengths. Consider whether you have:

High quality suppliers / buyers
Some identifiable USP
Established track record with suppliers & clients
Good history of managing stocks & receivables
Number of repeat clients
Testimonials from suppliers/clients
Process qualifications from international, reputed bodies
Financials audited by reputed auditors

24/05/12 7
© Copyright SALVUS. 2011

Case study..1st time borrower

The client…
Logistics, freight forwarder, supply chain service provider
Pros: Good client base
Reasonable financials
Fast growing

Cons: Chunky exposures to few clients
Slightly erratic track record
No borrowing track record

© Copyright SALVUS. 2011

The SALVUS Solution….
 Chose bank that understood service industries
 Structured financing based on company strengths
 Focus: performance track record and quality of clients
 Short duration of debt

Solution: to set up a factoring line for discounting receivables.
Next step: to finance network expansion vide loans, once track
record established.

24/05/12 9
© Copyright SALVUS. 2011

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DIC Excellence Series May Session - Raising bank finance for Service and IT companies

1. DIC Excellence Series Presented by Salvus Advisors JLT Raising bank finance for Service and IT companies 24/05/12 1

2. How banks perceive ALL SMEs….. SMEs are perceived as high risk… High concentration risks Key man risk Limited fall-back options Poor financial management & transparency Unable to articulate financing needs Skip risk 24/05/12 2 © Copyright SALVUS. 2011

3. How are IT and service companies different? Hardware (IT) and service companies slightly different… Both sectors perceived as higher risk. Low entry barriers No exclusivity, low USP levels? High stock obsolescence risk Service companies : Dealing in intangibles Higher risk of commercial disputes 24/05/12 3 © Copyright SALVUS. 2011

4. The Preparation: If you are a Start up By start up, any firm that is less than 2 years old… Begin by maintaining clean accounts Use an outsourced accounting service provider Ensure you have good (cheap) software Get your accounts audited by a bank empanelled auditor Ensure your payment record is good Open operating accounts with 2 “right” banks Build good reputations with buyers/suppliers 24/05/12 4 © Copyright SALVUS. 2011

5. Start-ups, continued….. Balance sheet lending to start-ups, almost impossible now. So what are your options? Expensive parameterized loans Some structured trade financing MAY be possible 24/05/12 5 © Copyright SALVUS. 2011

6. Mature, 1st time borrowers Hard work, even for mature companies, especially service providers… Clearly identify financing needs as a bank would Prepare a brief but comprehensive business plan Put together a comprehensive information pack Identify the appropriate bank Get introduced, if possible 24/05/12 6 © Copyright SALVUS. 2011

7. Showcase your strengths Identify your strengths. Consider whether you have: High quality suppliers / buyers Some identifiable USP Established track record with suppliers & clients Good history of managing stocks & receivables Number of repeat clients Testimonials from suppliers/clients Process qualifications from international, reputed bodies Financials audited by reputed auditors 24/05/12 7 © Copyright SALVUS. 2011

8. Case study..1st time borrower The client… Logistics, freight forwarder, supply chain service provider Pros: Good client base Reasonable financials Fast growing Cons: Chunky exposures to few clients Slightly erratic track record No borrowing track record © Copyright SALVUS. 2011

9. The SALVUS Solution….  Chose bank that understood service industries  Structured financing based on company strengths  Focus: performance track record and quality of clients  Short duration of debt Solution: to set up a factoring line for discounting receivables. Next step: to finance network expansion vide loans, once track record established. 24/05/12 9 © Copyright SALVUS. 2011

10. THANK YOU 24/05/12 10

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